Loading ...Shock & Awe
Remember those old Fram oil filter commercials about “you can pay me now or pay me later”? The FED has a choice between a shock and awe move to contain inflation or allowing it to continue, eventually leading to the end of the US dollar as the global reserve currency. Unfortunately, Jay Powell allowed the problem to develop and I don’t believe he has what it takes to channel Paul Volker. I am not calling for what Volker did, the times and circumstances are different. However, if they want to contain inflation with a minimum of pain(which I do not expect them to do) the FED should announce on Wednesday an immediate end to QE and a 1/4 point increase in the fed funds rate. The stock market would drop about ten percent or so, in a day or two. So what, in the grand scheme of things. This would show the world they are serious about fighting inflation and remove all the bubilicious speculation from all the bubble markets. They wouldn’t have to do much more than slowly get interest rates up to the 2% area, over time, to end negative rates. Is this going to happen. Maybe, a 5% chance.
CM – I am not up on this, but what is inflation like in other currencies – like the Euro and Yen? If we are on par with them, I don’t see the dollar being in any danger of being displaced as the reserve currency.
Inflation is part of it but what will replace the dollar is IF something better is available. The only country who has the means and desire to back their currency with gold is China. When they decide the time is right for them(it may not be for a while or they may accelerate the timeline because of the Evergrande collapse) when they back the Yuan with Gold (probably when the digital yuan is more widely developed).